go to your contacts and hit menu> display options> gmail account> and check all the boxes and hit done

This should allow all of your contacts to show up. Go onto a computer and log into gmail and then go to your account settings and there you can organize all of your contacts much easier than on the phone.

I think it's more likely that the huge numbers are users who use the phone for business and pleasure. Clients and colleagues can consume a large portion of an address book.

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Yep. 3,800 contacts for me. It's a little slow to autocomplete emails on K-9 though. (The native email app autocompletes a lot faster, but unfortunately lacks basic features like "mark all read" so K-9 is required for me).